Pension sharing orders in divorce financial settlement

8th March 2015 by

 

Thanks to the Welfare Reform and Pensions Act 1999, the pension is now a valuable and divisible asset in a financial settlement on divorce. However, this particular asset can prove a complex one to divide and whether you work and save for your pension in Manchester, Brighton or London, a divorce solicitor will be essential in order to ensure legitimate sharing of the fund.

Divorcing couples may well find that one spouse has accumulated a large pension fund for their retirement years, and the other, usually the wife, will have stayed at home to raise children and run the family home, having little or no chance to build funds for later years. When a divorce or civil-partnership dissolution occurs, the couple has several options regarding division of the pension pot, such as offsetting, earmarking or pension sharing.

Pension sharing on divorce

Pension sharing is favoured by the family court as it allows for a financial clean break between the spouses.

Pension attachment orders, also known as ‘pension earmarking’, create several problems for the divorcing spouses and do not allow for a clean break. With a pension sharing order, the non-pensioned spouse’s rights to the asset are not reliant on uncontrollable factors, such as the husband choosing to alter pension contributions or deciding not to retire once the asset becomes payable.

A pension sharing order is defined by the Matrimonial Causes Act 1973, s. 21A(1) as an order which:

  • (a) provides that one party’s (i) shareable rights under a specified pension arrangement, or (ii) shareable state scheme rights, be subject to pension sharing for the benefit of the other party, and
  • (b) specifies the percentage value to be transferred.

But, there are costs involved – valuation and administration fees are charged by the pension scheme managers or trustees – and this may mean that if a pension is of fairly low value, a pension sharing order may not be the best way to proceed.

How does pension sharing work?

When a pension fund is substantial, and the court has ruled that a pension sharing order be applied, the value of the asset will be calculated, by the scheme managers, using the cash equivalent transfer rate (CETV) method.

There is no set rule about the levels of division that the court will apply as each pension sharing order will be determined on the relevant merits of the divorce financial settlement. The family court will determine each spouse’s rights to a percentage of the asset and that part of the value of the pension is then transferred to the non-pensioned ex-spouse to fund a new pension. The scheme member’s pension rights will then be reduced by the value of the transferred sum.

In England and Wales the transferrable amount will be always be a percentage of the CETV, whilst in Scotland a specified cash sum may be ordered for transferral.

Divorce solicitors can advise on pension sharing

The division of pension assets on divorce is complex and presents statistical challenges which require experienced consideration and application. If you or your spouse has a substantial pension fund, then a pension sharing order may be the most effective method of dividing the asset; however, the advice of an experienced family law lawyer is always necessary to ensure full compliance with pension law.

Healys is a full service legal firm with offices in Brighton and London. Our divorce solicitors work alongside a full range of experienced legal professionals in every area of law and can offer you the benefit of a full range of advice to ensure the best outcome in your divorce financial settlement.

For more information on the service we provide, please contact Jane Sanders in London on 020 7822 4107 or email jane.sanders@healys.com. For Brighton enquiries, please contact Catherine Taylor on 01273 669 124 or email catherine.taylor@healys.com